We are writing to provide you with guidance regarding advance appropriations that affect some of our programs in the FY 2002 Department of Education Appropriations Act (Public Law 107-116). In that Act, Congress appropriated a sum of funds for a number of Federal education programs but made only a portion of those funds available for obligation beginning on July 1, 2002. The remaining funds do not become available for obligation until October 1, 2002. The initial grant awards issued for the affected programs included only the amount of funds made available on July 1.

We have prepared the enclosed guidance for your information. This guidance is similar to the guidance the Department sent to State officials in the two previous years. We have attempted to provide State and local educational agencies with as much flexibility as possible consistent with applicable Federal budget and appropriations laws.

Please contact us if you need additional clarification. We look forward to working with you as you implement Federal education programs during this school year.

Q1. What does it mean when Congress "advances" a portion of a program's appropriation?

A1. In the FY 2002 appropriations for a number of Federal education programs, Congress appropriated a sum of funds but made only a portion available for obligation on July 1, 2002. The remaining funds do not become available for obligation until October 1, 2002.

Advancing a portion of a program's appropriation in this manner allowed Congress to appropriate more money than otherwise would have been permitted under the annual budget caps on Federal discretionary spending, because the advance appropriation (i.e., the amount that becomes available October 1) will count against the FY 2003 cap rather than the FY 2002 cap.

Q2. Which programs have advance appropriations in FY 2002?

A2. In the FY 2002 appropriations act, Congress passed an advance appropriation for the following programs:

Program

Amount available July 1

Amount available October 1

Education of the Disadvantaged (ESEA, Title I, Part A)

$3,158,199,000

$7,188,301,000

Reading First State Grants (ESEA Title I, Part B, Subpart 1)

705,000,000

195,000,000

Improving Teacher Quality State Grants (ESEA Title II, Part A)

1,700,000,000

1,150,000,000

Safe and Drug-Free Schools and Communities-SEA and Governor Grants (ESEA, Title IV, Part A)

Q3. Because a portion of funds is not available until October 1, will a State receive two grant awards for FY 2002?

A3. Yes. For each affected program, the Department issued to States meeting the necessary legal requirements, an initial grant award obligating the State's portion of funds the appropriations act made available on July 1. The Department will issue supplemental awards for each affected program at the beginning of October obligating the remaining funds.

Q4. How does a State make grant awards to its subgrantees?

A4. Prior to October 1, a State may not award more funds than the Department has made available to the State from the "July 1 funds." Subject to this condition, however, a State has several options for awarding "July 1 funds" to its subgrantees. In most circumstances, a State, like the Department, would calculate each subgrantee's allocation and award a percentage of that allocation commensurate with the amount of "July 1 funds" available to the State. The State would then issue a supplemental grant after October 1 awarding the remaining funds. However, if the State knows that certain subgrantees will need more funds prior to October 1 than their initial awards would provide, a State may award those subgrantees a larger percentage of the "July 1 funds," provided that doing so does not disadvantage the remaining subgrantees and that all subgrantees receive their correct share of the total funds appropriated in the FY 2002 appropriations act after the "October 1 funds" are awarded. There also may be circumstances in which a State would make full grant awards after October 1, 2002. For Title I Concentration Grants, Targeted Grants, and Education Finance Incentive Grants, no funds will be available for obligation until after October 1, 2002.

Q5. How long are the funds that become available on October 1 available for obligation by State and local recipients?

A5. With the exception of the vocational education state grant program, the funds that become available on October 1, 2002 will be available for obligation by State and local recipients through September 30, 2004. Note that the funds made available on July 1, 2002 also are available for obligation until September 30, 2004. This period of availability includes the initial period authorized by the appropriations act and an additional 12 months authorized by section 421(b) of the General Education Provisions Act (the "Tydings Amendment"). Thus, funds awarded on July 1 are available for obligation for 27 months, while funds awarded on or after October 1 are available for obligation for 24 months.

With respect to vocational education state grant funds, a State may make these funds available to subgrantees for only one academic year. A subgrantee must return any unexpended funds for the State to reallocate. The returned funds will be available for the State to reallocate and for new subgrantees to obligate until September 30, 2004.

Q6. May a State use and permit a subgrantee to use funds it receives on or after October 1 to retroactively fund allowable pre-award costs it may have incurred prior to October 1 in operating its school year 2002-2003 program?

A6. Yes. In operating its school year 2002-2003 program, a State may use and may authorize a subgrantee to use funds it receives on or after October 1, 2002 to retroactively fund allowable pre-award costs it may have incurred between the date it was first authorized to begin obligating FY 2002 funds and October 1. (For example, for most States, the date they may begin obligating FY 2002 formula grant funds would be July 1. However, under 34 CFR 76.703, if a State plan is due and is not submitted in substantially approvable form in a timely manner, that State's authority to obligate Federal funds could be delayed.)

The Department considers (consistent with 34 CFR 76.707) the obligation of pre-award costs to be made at the State or local level on the first day of the supplemental grant or subgrant period -- i.e., a date on or after October 1. They must be costs that would be allowable if incurred after the date of the award and must be approved, in writing, by the Department (in the case of State grants) or the State (in the case of State subgrants).

Q7. Must a State or subgrantee account for funds that become available on July 1 separately from funds that become available on October 1?

A7. No. However, a State must be able to show that each subgrantee received its correct share of the total FY 2002-appropriated funds consistent with any statutory within-State formula applicable to a program. Moreover, if a State does not award pre-award costs to its subgrantees, the subgrantees must be able to demonstrate that their obligations prior to October 1 do not exceed their allocation of "July 1 funds."

Q8. If a program has a limitation on the amount of funds that may be carried over to the following fiscal year, how is that amount calculated?

A8. Under Part A of Title I of the ESEA, an LEA may not carry over to the 2003-2004 school year more than 15 percent of the Part A, subpart 2 formula grant funds it receives for FY 2002. Similarly, under the Safe and Drug-Free Schools and Communities Program, an LEA generally may not carry over more than 25 percent of the total amount it receives for FY 2002. These caps are calculated on the total allocation that an LEA receives from its July 1 and October 1 installments.

Q9. Must Governors make two sets of grant awards to their subgrantees/contractors?

A9. States received their first "installment" of FY 2002 SDFSCA funds on or about July 1, 2002. The second installment will not be awarded to States until on or after October 1, 2002. Since the Governor's funds can be awarded on a discretionary basis, the Governor may award funds based on needs and established priorities. Therefore, the Governor may choose to make one set of awards in July and another set of awards in October. However, if the Governor chose to award some of the funds prior to October 1, the Governor should not have awarded more than the total amount made available in the July installment.

Q10. May Governors fully fund some of their subgrantees/contractors from the July installment and defer funding to others until October?

A10. Yes. Again, the SDFSCA gives discretion to the Governor's program to establish funding periods that will meet appropriate funding priorities and needs.